Already, we’ve discussed some common misconceptions regarding home loans and given you some perspective on how you can live rich in your brand-new home. I hope that you’re feeling confident about your budget–how much home you can afford– and that you can identify the misconceptions surrounding home loans.
You have your own wants and needs in home financing, of course! Just know that if you’re still feeling unsure, a lender can put you on the right path. That’s their specialty, so take advantage!
In the meantime, it’s good to do your research so you can be informed for when you speak with a lender. Here’s a quick list of the four most common home loan types. See if any of these sound good to you!
- Conventional Loans:
- Veteran’s Administration (VA) Loans:
- United States Department of Agriculture Rural Development (USDA) Loans:
- Federal Housing Administration (FHA) Loans:
Typically, the maximum financed with a conventional loan will be 95%, so a 5% down payment would be required. There are some special programs for specific buyers such as doctors, and buyers with very high credit scores, that offer lower down payments or no PMI, but these are less common and vary by lender. Fees tend to be lower on conventional loans than on FHA loans.
The VA loan is one of the few 100% loans, and thus, no down payment is required. This loan type is available to veterans of the United States military. You must have a certificate of eligibility (CoE) to use this loan product. Details about eligibility are HERE. If you are eligible, this loan may have favorable interest rates and low built in fees and is one of the only loan products that allows 100% financing.
The USDA loan is another 100% financing loan, but it’s availability is limited. A home must be located within the USDA eligibility area, which will generally limit it to rural areas (see the eligibility map here), and the borrower’s household must be under the maximum income limits (listed here). USDA loans traditionally had low fees, but fees have increased since the most recent recession.
The FHA loan product allows up to 96.5% financing, thus requiring a 3.5% down payment. FHA loans are fee-heavy and have a built in PMI premium payment for the life of the loan. It is not the ideal loan type for people who have great credit and money to put down, but it might be the only option for people looking to get a home that have lower credit scores and less cash to put down, and don’t have access to a VA or USDA loan.
And that’s it for the common loan types! Easy, right? Now that you know more about Conventional, VA, USDA and FHA loans, which sounds like your ideal loan type? If you’re unsure or would like to know more, there’s good news. A good loan officer is an excellent resource and is happy to help, for free! But remember, not all lenders are equal. If you’d like to speak with a lender who can help you decide, you can reach some of the best in our area here.
If you’d like more information on financing, check out our financial guidebook, “Playing with House Money”.